Jump to content
House Price Crash Forum
Sign in to follow this  
wonderpup

Economists Call For The End Of Fractional Reserve Banking.

Recommended Posts

Economist Keen informs Washington’s Blog that about 6 OECD countries have already done away with reserve requirements altogether (Australia, Mexico, Canada, New Zealand, Sweden and the UK).

But there is a growing recognition that this is going in the wrong direction, because fractional reserve banking can destabilize the economy (and credit can easily be created by the government itself.)

It was big news this week when one of the world’s most prominent economics writers – liberal economist Martin Wolf – advocated doing away with fractional reserve banking altogether… i.e. requiring that banks only loan out as much money as they actually have on hand in the form of customer deposits:

As ever they are fighting the last war- fractional reserve requirements are zero in the UK and according to the the positive money website even when they existed they were not strictly cash/central bank based reserves but were in fact 'liquidity reserves' which did not in fact impose a hard limit on the amount of credit the banking sector as a whole could create.

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated

What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes.

A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well.

And for all the tin foil hatter's out there- the one time in the US they even came close to shutting down the private banks ability to print their own money one of the main protagonists 'died in a plane crash' and as a result the bill was never passed;

Interestingly, the Chicago Plan for full reserve banking came very close to passing in 1934. But the unfortunate death of one of its main Congressional sponsors – Senator Bronson M. Cutting – in a plane crash reversed the momentum for the bill.

As Wikipedia notes:

Cutting played a key role in the political struggles over the reform of banking which Roosevelt undertook while dealing with the Great Depression, and which resulted in the Banking Reform Acts of 1933 and 1935. As a supporter of the Chicago Plan proposed by economist Irving Fisher and others at the University of Chicago, Cutting was among a handful of influential Senators who might have been able to remove from the private banks their ability to manipulate the money supply by enforcing a 100 percent reserve requirement for all credit creation, as stipulated in the Chicago Plan. His unfortunate death in an airliner crash cut short what may have been his most enduring legacy to the nation.

http://www.zerohedge.com/contributed/2014-05-01/prominent-economists-call-end-fractional-reserve-banking

Strange how anyone who tries to radically change the ability of the private banks to mint their own cash meets with either an accident or is the victim of some 'random' crazy person who takes them out.

Share this post


Link to post
Share on other sites

Plane Crash eh?

Not much info on this guy, but a 1920s republican, apparently against censorship of the press, its clear he'd be considered a libertarian today.

Then there was the death by airplane of Larry McDonald

http://en.wikipedia.org/wiki/Larry_McDonald

And of course, the attempted slaying of Nigel Farage.

Being anti-government is a dangerous occupation.

Share this post


Link to post
Share on other sites

As ever they are fighting the last war- fractional reserve requirements are zero in the UK and according to the the positive money website even when they existed they were not strictly cash/central bank based reserves but were in fact 'liquidity reserves' which did not in fact impose a hard limit on the amount of credit the banking sector as a whole could create.

And for all the tin foil hatter's out there- the one time in the US they even came close to shutting down the private banks ability to print their own money one of the main protagonists 'died in a plane crash' and as a result the bill was never passed;

Interestingly, the Chicago Plan for full reserve banking came very close to passing in 1934. But the unfortunate death of one of its main Congressional sponsors – Senator Bronson M. Cutting – in a plane crash reversed the momentum for the bill.

As Wikipedia notes:

Cutting played a key role in the political struggles over the reform of banking which Roosevelt undertook while dealing with the Great Depression, and which resulted in the Banking Reform Acts of 1933 and 1935. As a supporter of the Chicago Plan proposed by economist Irving Fisher and others at the University of Chicago, Cutting was among a handful of influential Senators who might have been able to remove from the private banks their ability to manipulate the money supply by enforcing a 100 percent reserve requirement for all credit creation, as stipulated in the Chicago Plan. His unfortunate death in an airliner crash cut short what may have been his most enduring legacy to the nation.

http://www.zerohedge.com/contributed/2014-05-01/prominent-economists-call-end-fractional-reserve-banking

Strange how anyone who tries to radically change the ability of the private banks to mint their own cash meets with either an accident or is the victim of some 'random' crazy person who takes them out.

yes, printing counterfeit banknotes IS illegal.

ours are supposed to say" I promise to pay the bearer on demand the sum of xxx Pounds.....and there should also be a little bit in there that says STERLING"

JUST LOOK AT THE DIFFERENCE BETWEEN THE OLD BANKNOTES AND THE NEWER BANKNOTES.

slight lack of that word "sterling"

so technically illegal.

likewise in the USA.

...according to constitution....CONGRESS has the authority to issue money, NOT THE FED.

Share this post


Link to post
Share on other sites

yes, printing counterfeit banknotes IS illegal.

ours are supposed to say" I promise to pay the bearer on demand the sum of xxx Pounds.....and there should also be a little bit in there that says STERLING"

JUST LOOK AT THE DIFFERENCE BETWEEN THE OLD BANKNOTES AND THE NEWER BANKNOTES.

slight lack of that word "sterling"

so technically illegal.

likewise in the USA.

...according to constitution....CONGRESS has the authority to issue money, NOT THE FED.

I can tell that you are probably a brilliant lawyer. Obviously not even the BoE clocked that what they do is illegal. They probably do not even know the law you are referring to. By the way, which one is it?

Share this post


Link to post
Share on other sites

I think it is worth adding that while we do not have fractional reserve requirements in the UK, there are minimum liquidity requirements. These usually equate to about 15% of deposits, and need to be kept in the central bank or government bonds, so the effect is much the same. The is a De facto fractional reserve requirement, but it was introduced by THE FSA following the crisis, not by the BOE.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   209 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.